San Jose Business Lawyers Blog
For many employers, paying employees with cryptocurrency is probably something you’ve never considered before. But these days, cryptocurrency is inching closer and closer to the mainstream.
Proof of how quickly cryptocurrency is becoming the new normal was evident when New York mayor Eric Adams vowed to accept his first three paychecks in bitcoin, and Miami Mayor Francis Suarez essentially did the same.
In April 2022, the Laredo Morning Times reported that Vantage Bank was planning to offer a new way for their employees to have a savings plan with the company, stepping away from traditional savings plans and offering a digital currency savings plan using bitcoin. While the bank was offering the new savings plan, it planned to continue to provide a traditional savings plan as well.
Although the endorsement of cryptocurrency as payment by such prominent figures might seem like a validation of the practice, any employer contemplating the use of cryptocurrency for employee compensation will want to ensure they are consulting with an Austin, TX blockchain and cryptocurrency lawyer.
Cryptocurrency Laws in Texas
Both Texas law and the federal Fair Labor Standards Act (FLSA) require employees to be paid in United States currency, a written instrument issued by an employer that is negotiable on demand at full face value for American currency, or by the electronic transfer of funds. State law does allow for certain flexibility in the payment of wages, and both employers and employees could agree in writing to receive part or all of the wages in kind or another form, including bitcoin.
This means that a Texas employer that is not covered by FLSA could be able to agree with an employee to make some of that employee’s wages payable in cryptocurrency. If an employer in Texas agrees to pay an employee in any form other than United States currency, it will be taking a risk that any interruption in the payment could result in potential liability for unpaid wages.
This means that when a payment is refused for any reason, the payment attributable to the employer will not constitute the payment of wages. Employers may be taking unnecessary risks in making payments in anything other than American currency or more traditional negotiable instruments.
Employees may be more likely to request cryptocurrency payments under the belief that payments will be tax exempt or less likely to be reported to the Internal Revenue Service (IRS). The IRS states, however, that cryptocurrency and virtual currency payments are taxable as wages.
FLSA Requirements
FLSA governs minimum wage, overtime pay, and other wage-related issues in both the private and public sectors and requires payments of prescribed wages, including minimum wage and overtime compensation, to be in either cash or some negotiable instrument payable at par. Specific and limited exceptions exist to the cash or negotiable instrument rule, as Section 3(m) of FLSA allows employers to count the value of food, housing, or other facilities provided to overtime-eligible employees towards wages under certain circumstances.
The United States Department of Labor (DOL), the federal agency responsible for enforcing FLSA, has allowed employers paying with foreign currencies to comply with FLSA, so long as the amounts paid, when converted into American currency using the exchange rate current at the time of payment, meet relevant FLSA thresholds. It is still unclear whether the DOL or the courts will deem cryptocurrencies to be comparable to foreign currency as lawful methods of payment of wages under FLSA, regardless of whether a payment is in a cryptocurrency that converts to fiat currency or another lesser-traded digital coin.
How to Pay Employees in Cryptocurrency
Paying employees with cryptocurrency opens up a ton of new opportunities, but also introduce new concerns. Here are a few things to keep in mind when deciding to pay employees in crypto. First, obtain written authorization from employees. Second, partner with a third-party vendor to convert U.S. dollars into cryptocurrency and transfer payment to the employee’s digital wallet, instead of holding the cryptocurrency yourself. Third, pay minimum wages and overtime in U.S. dollars to avoid issues with the U.S. Department of Labor, while bonuses and incentive payments can be made in cryptocurrency. Finally, remember tax obligations. Both employers and employees are still required to pay income and payroll taxes. Employees will owe income tax on the fair market value of the cryptocurrency when they receive it, and potentially capital gains tax if they sell the crypto after its value increases.
Call Us Today to Speak with an Austin, TX Blockchain and Cryptocurrency Lawyer
Overall, the use of cryptocurrency as compensation is an individual decision for each unique employer and employee to make. There’s not truly right or wrong answer. The key is to think the decision through thoroughly.
If you are considering paying your employees in cryptocurrency in Texas, you will want to avoid any potential legal issues and ensure compliance with both state and federal laws. Immediately seek the help of an Austin, TX blockchain and cryptocurrency attorney so you can be sure that your plans are in compliance with legal requirements.
Structure Law Group understands how complicated these kinds of issues can be for employers, and we know how to ensure that you can legally pay your employees in the manner that is allowed. Call (512) 881-7500 or contact us online to set up a consultation with our Austin, TX blockchain and cryptocurrency lawyer.